London’s alpha housing market is showing signs of strain. The city was losing its charm for high-end home investors even before the UK decided to quit the EU. A developer holding part of the fancy Nine Elms complex has cut the value of its stake, and prices for the most prized houses in central London are now 8 percent below their 2014 peak. Sterling’s fall will attract some buyers, but Britain's capital city is losing its relative appeal.
Property group St. Modwen cut the value of its stake in Nine Elms to the tune of 10 percent, reflecting falling prices in the area. The impact of the Brexit vote could send London home prices down by 10 percent to 20 percent, Green Street analysts reckon, and there are already signs of caution. Singapore’s United Overseas Bank said it will no longer lend against property in the capital after the June 23 vote to leave the European Union. Singaporeans were the top Asian investors in UK real estate last year.
Sinking money into London property has been a winning strategy for wealthy Asian and Middle Eastern buyers since the financial crisis. A house bought in the most exclusive neighbourhoods of London mid-2011 would be worth 24 percent more today, according to Savills. That lags the 29 percent return on the FTSE 100 in the same period, but that was tolerable while investors expected prices to continually increase.
They are now more likely to look elsewhere. An increase in stamp duty that came into effect in April for buy-to-let properties checked demand even before the referendum. Oversupply was threatening to stymie rising prices, with more than 35,000 luxury London homes slated to be built in the next decade, according to consultancy Arcadis. Nor is the prospect of global banks moving tens of thousands of traders to Paris or Frankfurt a good omen for sales of flashy properties.
Buy-to-let is also losing ground. London ranks 74th on a Global Property Guide list of 82 international cities for annual rental yield. New York, Tokyo and Sydney all have lower buying prices per square meter and higher rent yields. Investors can now get a better deal elsewhere, with no compromise on big-city glitz.